Statement of Robert Reilly, CPA/ABV/CFF

On behalf of the  

American Institute of Certified Public Accountants

Forensic and Valuation Services Executive Committee

Before the United States Department of Labor  

Employee Benefit Security Administration

Proposed Rule on Definition of the Term “Fiduciary”  

March 2, 2011

I am Robert Reilly and I am here today representing the American Institute of Certified Public 

Accountants’ (AICPA) Forensic and Valuation Services Executive Committee (FVSEC). Thank you for the 

opportunity to present our views on the Department’s proposed rule redefining the circumstances under 

which a person is considered to be a fiduciary under ERISA by reason of providing advice to an employee 

benefit plan or a plan participant. The proposal specifically includes the provision of appraisals in 

connection with plan transactions concerning the value of securities or other property. 

The AICPA is the national professional member organization of over 360,000 certified public accountants. 

The AICPA has a Forensic and Valuation Services Section for CPAs that perform business valuation 

services, and administers the Accredited in Business Valuation (ABV) credential program.  ABV credential 

holders must hold a valid CPA certificate, pass a rigorous examination, and have a sufficient level of 

business valuation experience and continuing education. ABV credential holders are commitment to 

continuously improving valuation skills and expertise, resulting in increased professional competency.  

Many CPAs perform business valuation services. Many of these CPAs regularly value the stock of 

employer corporations that sponsor an employee stock ownership plan (i.e., an ESOP) or other employee 

benefit plans. These employer stock valuations are typically performed for transaction, taxation, or plan 

administration purposes. 
We commend the Department for its concern and diligence related to the quality of employee benefit 

plan sponsor company valuations. The issue of the quality of sponsor company valuations is real and 

affects plan participants. Substandard valuations of the sponsor company may cause the associated 

benefit plan to make an incorrect investment decision if the sponsor company stock was improperly 

valued at the time of the benefit plan purchase of the employer securities. If the employer stock valuation 

is too high then plan participants would earn a decreased rate of return on their investment.  

We firmly believe, however, that treating the sponsor company valuation analyst as a plan fiduciary is 

exactly the wrong way to address this issue. In fact, defining the valuation analyst as a fiduciary will be 

disadvantageous to benefit plan participants for several reasons.   

Let me take a few minutes to summarize our concerns as discussed in our comment letter. Then I will 

spend the remainder of my time discussing what we believe is an appropriate and cost‐effective solution 

to the problem of substandard valuations.  

As stated in our formal comment letter to the Department, we have four significant concerns with the 

proposed change:  

 The proposed change to the definition is incompatible with the Internal Revenue Service’s requirements 

for an independent appraisal of employer securities, 

 The proposed change does not address the underlying issue of proper qualifications and standards for 

performing valuation services, 

 The proposed change will increase the cost of valuation services for ESOP plans, and 

 The proposed change will restrict the number of valuation specialists willing to do valuations for ESOP 

plans 

The conflict with the IRS’s requirements for independence is a real and significant issue.  As a fiduciary, a 

valuation analyst would have to perform the valuation in a manner that is in the best interest of the plan 

participants, whereas the IRS requirements require the valuation to be performed such that the value is 

the most correct, without regard for the impact of the value to the end user.  Holding valuation preparers 

to the standard of a fiduciary would open the door to increased litigation, which in turn would 

significantly drive up the cost of insurance for valuation analysts, if they could get insurance at all.  Many 

of the most reputable and well established firms would likely quit offering valuation services for plans 

due to the increased risk, driving the very people who are best suited to preparing valuations away from 

this work.  For firms that continue offering these services, the increased cost would be passed on to the 

participants, through higher plan administration costs or reduced earnings of the company. 
So what is the solution? An appraisal should be prepared by a qualified individual in accordance with 

appropriate valuation standards.  We believe a qualified appraiser should have proper credentials that 

demonstrate the individual has the education and experience to perform plan valuations. We recommend 

that the Department require all sponsor company valuations to be performed by professionally 

credentialed valuation analysts who would be required to prepare the valuations in compliance with 

generally accepted business valuation standards, similar to those standards encompassed in Internal 

Revenue Code Section 170(f)(11)(E) on qualified appraisers. Those standards include minimum 

education, experience and licensure or certification requirements. We recommend the Department 

establish similar minimum qualification requirements for employer stock valuations. If the Department 

were to require similar requirements for the preparation of valuations for employee benefit plans then 

the risk of a plan receiving a poor quality appraisal would be substantially mitigated. 

The AICPA issued Statement on Standards for Valuation Services No1 (SSVS1) in June of 2007 which 

established standards for AICPA members who are engaged to estimate the value of a business, business 

ownership interest, security, or intangible asset.  Since SSVS1 was issued, all other domestic valuation 

organizations have changed their valuation standards so that they are all significantly equivalent.  These 

standards outline minimum requirements for the development of an opinion of value and the reporting of 

that opinion. 

We believe the AICPA professional credentials and professional standards meet the current valuation 

analyst requirements of the Internal Revenue Code. In contrast, the definition of the sponsor company 

valuation analyst as a fiduciary is fundamentally in conflict with the independence requirements for 

valuation analyst in the Internal Revenue Code. 

Again, thank you for your time and interest today.  I would be happy to answer any questions.  

#   #   #   #   #